Economy of Syria

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The economy of Syria is based on agriculture, oil, industry and services. Its GDP per capita expanded 80% in the 1960s reaching a peak of 336% of total growth during the 1970s.[citation needed] This proved unsustainable for Syria and the economy shrank by 33% during the 1980s. However the GDP per capita registered a very modest total growth of 12% (1.1% per year on average) during the 1990s due to successful diversification. More recently, the International Monetary Fund (IMF) projected real GDP growth at 3.9% in 2009 from close to 6% in 2008. The two main pillars of the Syrian economy used to be agriculture and oil, which together accounted for about one-half of GDP. Agriculture, for instance, accounted for about 25% of GDP and employed 25% of the total labor force. However, poor climatic conditions and severe drought badly affected the agricultural sector, thus reducing its share in the economy to about 17% of 2008 GDP, down from 20.4% in 2007, according to preliminary data from the Central Bureau of Statistics. On the other hand, higher crude oil prices countered declining oil production and led to higher budgetary and export receipts.[6]

During the 1960s, citing its socialistideology, the government nationalized most major enterprises and adopted economic policies designed to address regional and class disparities. This legacy of state intervention and price, trade, and foreign exchange controls may have hampered economic growth. Syria also has low investment levels, and relatively low industrial and agricultural productivity. Economic reform has been incremental and gradual. In 2001, Syria legalized private banking. In 2004, four private banks began operations. In August 2004, a committee was formed to supervise the establishment of a stock market. Beyond the financial sector, the Syrian Government has enacted major changes to rental and tax laws, and is reportedly considering similar changes to the commercial code and to other laws, which impact property rights.

Syria has produced heavy-grade oil from fields located in the northeast since the late 1960s. In the early 1980s, light-grade, low-sulphur oil was discovered near Deir ez-Zor in eastern Syria. This discovery relieved Syria of the need to import light oil to mix with domestic heavy crude in refineries. Recently, Syrian oil production has been about 379,000 barrels per day (bpd). Syria's oil reserves are being gradually depleted and reached 2.5 billion barrels in January 2009. Experts generally agree that Syria will become a net importer of petroleum by the end of the next decade. Recent developments have helped revitalize the energy sector, including new discoveries and the successful development of its hydrocarbon reserves. According to the 2009 Syria Report of the Oxford Business Group, the oil sector accounted for 23% of government revenues, 20% of exports, and 22% of GDP in 2008. Syria exported roughly 150,000 bpd in 2008, and oil accounted for a majority of the country's export income.[6]

Ad hoc economic liberalization continues to add wealth inequality, impoverishing the average population while enriching a few people in Syria's private sector. In 1990, the government established an official parallel exchange rate to provide incentives for remittances and exports through official channels. This action improved the supply of basic commodities and contained inflation by removing risk premiums on smuggled commodities.

Foreign aid to Syria in 1997 totaled an estimated US$199 million. The World Bank reported that in July 2004 that it had committed a total of US$661 million for 20 operations in Syria. One investment project remained active at that time.

Despite the mitigation of the severe drought that plagued the region in the late 1990s and the recovery of energy export revenues, Syria's economy faces serious challenges. With almost 60% of its population under the age of 20, unemployment higher than the current 9% is a real possibility unless sustained and strong economic growth takes off.[citation needed]

Commerce has always been important to the Syrian economy, which benefited from the country's location along major east-west trade routes. Syrian cities boast both traditional industries such as weaving and dried-fruit packing and modern heavy industry. Given the policies adopted from the 1960s through the late 1980s, Syria refused to join the "global economy". In late 2001, however, Syria submitted a request to the World Trade Organization (WTO) to begin the accession process. Syria had been an original contracting party of the former General Agreement on Tariffs and Trade but withdrew in 1951 because of Israel's joining. Major elements of current Syrian trade rules would have to change in order to be consistent with the WTO. In March 2007, Syria signed an Association Agreement with the European Union that would encourage both sides to negotiate a free trade agreement before 2010.

The bulk of Syrian imports have been raw materials essential for industry, agriculture, equipment, and machinery. Major exports include crude oil, refined products, raw cotton, clothing, fruits, and cereal grains.

Over time, the government has increased the number of transactions to which the more favorable neighboring country exchange rate applies. The government also introduced a quasi-rate for non-commercial transactions in 2001 broadly in line with prevailing black market rates.

Given the poor development of its own capital markets and Syria's lack of access to international money and capital markets, monetary policy remains captive to the need to cover the fiscal deficit. Although in 2003 Syria lowered interest rates for the first time in 22 years and again in 2004, rates remain fixed by law.

Syria has made progress in easing its heavy foreign debt burden through bilateral rescheduling deals with virtually all of its key creditors in Europe.In December 2004, Syria and Poland reached an agreement by which Syria would pay $27 million out of the total $261.7 million debt. In January 2005, Russia and Syria signed a deal that wrote off nearly 80% of Syria's debt to Russia, approximately €10.5 billion ($13 billion). The agreement left Syria with less than €3 billion (just over $3.6 billion) owed to Moscow. Half of it would be repaid over the next 10 years, while the rest would be paid into Russian accounts in Syrian banks and could be used for Russian investment projects in Syria and for buying Syrian products. This agreement was part of a weapons deal between Russia and Syria. And later that year Syria reached an agreement with Slovakia, and the Czech Republic to settle debt estimated at $1.6 billion. Again Syria was forgiven the bulk of its debt, in exchange for a one time payment of $150 million.

Agriculture is a high priority in Syria's economic development plans, as the government seeks to achieve food self-sufficiency, increase export earnings, and halt rural out-migration.[19] Thanks to sustained capital investment, infrastructure development, subsidies of inputs, and price supports, Syria has gone from a net importer of many agricultural products to an exporter of cotton, fruits, vegetables, and other foodstuffs. One of the prime reasons for this turnaround has been the government's investment in huge irrigation systems in northern and northeastern Syria.[20] The agriculture sector, as of 2009, employs about 17 percent of the labor force and generates about 21 percent of the gross domestic product,[21][22] of which livestock accounted for 16 percent and fruit and grains for more than 40 percent.[19]

Most land is privately owned, a crucial factor behind the sector's success.[19] Of Syria's 186,000 km² (72,000 square miles),[20] about 28 percent of it is cultivated, and 21 percent of that total is irrigated. Most irrigated land is designated "strategic", meaning that it encounters significant state intervention in terms of pricing, subsidies, and marketing controls. "Strategic" products such as wheat, barley, and sugar beets, must be sold to state marketing boards at fixed prices, often above world prices in order to support farmers, but at a significant cost to the state budget. The most widely grown arable crop is wheat, but the most important cash crop is cotton; cotton was the largest single export before the development of the oil sector. Nevertheless, the total area planted with cotton has declined because of an increasing problem of water shortage coupled with old and inefficient irrigation techniques. The output of grains like wheat is often underutilized because of poor storage facilities.[19]

Water and energy are among the most pervasive issues facing the agriculture sector. Another difficulty the agricultural sector suffered from is the government's decision to liberalize the prices of fertilizers, which have increased between 100% and 400%. Drought was an alarming problem in 2008; however, the drought situation slightly improved in 2009. Wheat and barley production about doubled in 2009 compared to 2008. In spite of that, the livelihoods of up to 1 million agricultural workers have been threatened. In response, the UN launched an emergency appeal for $20.2 million. Wheat has been one of the crops most affected, and for the first time in 2 decades Syria has moved from being a net exporter of wheat to a net importer.[23] During the civil war which began in 2011, the Syrian government was forced to put out a tender for 100,000 metric tonnes of wheat, one of the few trade products not subject to economic sanctions.[24]

Less than 3 percent of Syria's land area is forested, and only a portion of that is commercially useful. Limited forestry activity is centered in the higher elevations of the mountains just inland from the coast, where rainfall is more abundant.[25]

Phosphates are the major minerals exploited in Syria. Production dropped sharply in the early 1990s when world demand and prices fell, but output has since increased to more than 2.4 million tons. Syria produced about 1.9% of the world's phosphate rock output and was the world's ninth ranked producer of phosphate rock in 2009.[26] Other major minerals produced in Syria include cement, gypsum, industrial sand (silica), marble, natural crude asphalt, nitrogen fertilizer, phosphate fertilizer, salt, steel, and volcanic tuff, which generally are not produced for export.[25]

James W. Menhall was the first to discover oil in Syria. Syrian oil exploration first began in 1933 during the French Mandate, by the Iraq Petroleum Company (a consortium made up of Shell, BP, Exxon-Mobil, Total, and Gulbekian). In 1949, the American, James W. Menhall, an independent oil producer from Illinois, was approached by Syrian President Shukri Kuwatly to come to Syria to prospect for oil, after I.P.C. had drilled eleven wells and given up hope of finding any oil in Syria. He was awarded a concession on 17 May 1955 by unanimous vote of the Syrian parliament and started drilling in April 1956. In September 1956, Menhall discovered the Karatchok oil field with over 1 billion barrels of reserves. Six consecutive wells were drilled, each producing in excess of 4,000 barrels (640 m3). Menhall was just commencing preparations to drill the adjoining Rumeilan oil field (with over 500 million barrels of reserves) when, on 5 October 1958, President Nasser of Egypt expropriated his concession and confiscated his equipment and three drilling rigs, with no compensation whatsoever. This occurred during the brief union between Syria and Egypt (1958-1962) when Nasser was on a rampage nationalizing and expropriating companies and large family holdings. The Syrian government, under the Baath Party leadership, has since refused to consider any compensation. The Syrian oil industry took off in 1968, when the Karatchok oil field began production after a pipeline connecting it to the Homs refinery was completed, although Syria did not begin exporting oil until the mid-1980s.[27] Syria is a relatively small oil producer, accounting for just 0.5 percent of the global production in 2010.[28][29] Although Syria is not a major oil exporter by Middle Eastern standards, oil is a major pillar of the economy. According to the International Monetary Fund, oil sales for 2010 were projected to generate $3.2 billion for the Syrian government and account for 25.1% of the state's revenue.[30]

Syria is the only significant crude oil producing country in the Eastern Mediterranean region, which includes Jordan, Lebanon, Israel and the Palestinian territories. According to the Oil and Gas Journal, Syria had 2,500,000,000 barrels (400,000,000 m3) of petroleum reserves as of 1 January 2010.[31] Syria's known oil reserves are mainly in the eastern part of the country in the Deir ez-Zor Governorate near its border with Iraq and along the Euphrates River; a number of smaller fields are located in the center of the country.[32] In 2010, Syria produced around 385,000 barrels (61,200 m3) per day of crude oil.[29][30] Oil production has stabilized after falling for a number of years, and is poised to turn around as new fields come on line. In 2008, Syria produced 5.3 billion cubic metres (1.9×1011 cu ft) of natural gas, and two years later in 2010, it increased production to 5.3 m3 (190 cu ft).[33] While much of its oil is exported to Europe, Syria's natural gas is used in reinjection for enhanced oil recovery and for domestic electricity generation.[31]

In 2009, Syria's net petroleum exports were estimated to be 148,000 bbl/d (23,500 m3/d).[26] All oil exports are marketed by Sytrol, Syria's state oil marketing firm, which sells most of its volumes under 12-month contracts. Syrian crude oil exports go mostly to the European Union, in particular Germany, Italy, and France, totaling an estimated 137,400 bbl/d (21,840 m3/d) in 2009, according to Eurostat.[34] In 2010, the European Union as a whole spent $4.1 billion on Syrian oil imports.[35] Local exporters of oil in Syria include the Altoun Group in Maraba Damascus Syria.[36]

The oil sector of the economy faces many challenges, such as, a decline in output and production resulting from technological problems and a depletion of oil reserves. Syria's rate of oil production has decreased steadily, from a peak close to 610,000 bbl/d (97,000 m3/d) in 1995 down to approximately 385,000 bbl/d (61,200 m3/d) in 2010. Meanwhile, consumption is rising, which means that Syria could become a net oil importer within a decade.[27][29] To counteract this problem, Syria has intensified oil exploration efforts. Syria's upstream oil production and development has traditionally been the mandate of the Syrian Petroleum Company (SPC), an arm of the Syrian Ministry of Petroleum and Mineral Resources. The SPC has undertaken efforts to reverse the trend toward declining oil production and exports by increasing oil exploration and production in partnership with foreign oil companies. The SPC directly controls about half of the country's oil production and takes a 50 percent stake in development work with foreign partners.[31]

Syria oil exports by destination country in 2010 (note that as of 2012, all countries on this chart no longer trade oil with Syria due to sanctions against the country)

Foreign investment is vital for improving production levels, and following the outbreak of the Syrian civil war Western companies are legally prohibited from working in the country. The main foreign producing consortium is the Al-Furat Petroleum Company, a joint venture established in 1985, which currently includes the SPC at 50 percent ownership, Anglo-Dutch Shell at 32 percent, and the remainder held by Himalaya Energy Syria, a consortium of China National Petroleum Company and India's Oil and Natural Gas Corporation.[31] Another important consortium is Deir Ez Zor Petroleum Company, owned by SPC and France's Total. Shell has one of the oldest relationships with Syria dating back to 1949.[32] It produced with its joint venture partners an average 100,000 bbl/d (16,000 m3/d). As of December 2011 Shell has suspended operations in Syria due to EU sanctions.[37]

Total formed its Syrian operation in 1988 and in 2008 renewed its partnership sharing agreement with Syria during French PresidentNicholas Sarkozy's visit to Syria confirming France's continued interest in the company's activities in the country. Prior to the Syrian civil war, Total produced an average 27,000 bbl/d (4,300 m3/d) from its fields around Deir ez Zour.[38] Since the start of the civil war and the international sanctions applied to Syria, Total has suspended operations in the country since December 2011.[39]

A more recent entrant into the Syrian oil sector was the United Kingdom's Gulfsands Petroleum. At the beginning of 2011, its oil fields produced 20,700 bbl/d (3,290 m3/d).[40] As of February 2012, Gulfsands has suspended its Syria operations and entered into a force majeure due to EU sanctions on the Syrian government prohibiting the trade of oil.[41] Gulfsands dealings in Syria were also hit by EU sanctions due to Syrian tycoon Rami Makhlouf, a cousin of the Syrian president formally owning a 5.7 percent stake in the company,[28] with this stake being suspended in August 2011 due to specific sanctions relating to Makhlouf.[42] Other international players include or included: Canada's Suncor, Poland's Kulczyk, US-Eygptian firm IPR, Croatia's INA, Russia's Stroytransgas and Soyuzneftegaz, and Triton Singapore.[32][43]

Another option to handle the increase in domestic oil consumption besides increasing oil production is to switch power stations from oil-fired to natural gas-fired. Proven natural gas reserves, approximately three-quarters of which are owned by the Syrian Petroleum Company, were estimated at 2.6 trillion cubic meters (9.1 trillion cubic feet) in 2010.[33] The primary challenge for the natural gas industry is logistics: reserves are located mainly in northeastern Syria, whereas the population is concentrated in the west and south.[44]

Although Syria produces relatively modest quantities of oil and gas, its location is strategic in terms of regional security and prospective energy transit routes. Regional integration in the energy sector is expected to increase as a result of the 2008 opening of the Syrian link of the Arab Gas Pipeline[31]

In 2001 Syria reportedly produced 23.3 billion kilowatt hours (kWh) of electricity and consumed 21.6 billion kWh.[25] As of January 2002, Syria's total installed electric generating capacity was 7.6 gigawatts (GW), with fuel oil and natural gas serving as the primary energy sources and 1.5 GW generated by hydroelectric power.[25] A network totaling 45 GW linking the electric power grids of Syria, Egypt, and Jordan was completed in March 2001.[25] Syria's electric supply capacity is an important national priority, and the government hopes to add 3,000 megawatts of power generating capacity by 2010 at a probable cost of US$2 billion, but progress has been slowed by a lack of investment capital.[dated info][25] Power plants in Syria are undergoing intensive maintenance, and four new generating plants have been built.[25] The power distribution network has serious problems, with transmission losses estimated as high as 25 percent of total generated capacity as a result of poor quality wires and transformer stations.[25] A project for the expansion and upgrading of the power transmission network is scheduled for completion in 2005.[dated info][25]

As of May 2009 it was reported that the Islamic Development Bank and the Syrian government signed an agreement stating that the bank would provide a €100 million loan for the expansion of Deir Ali power station in Syria.[45]

Because land prices are not controlled by the state, real estate is one of the few domestic avenues for investment with realistic and safe returns. Activity in the construction sector tends to mirror changes in the economy. Investment Law No. 10 of 1991, which opened the country to foreign investment in some areas, marked the beginning of a strong revival, with growth in real terms increasing over 2001 and 2002.[25]

Services accounted for 45.3 percent of gross domestic product (GDP) in 2009[21] and employed 67 percent of the labor force, including government, in 2008.[22] As of May 2009, it was reported that Damascus office prices are skyrocketing.[46]

The Syrian government under Assad started its reform efforts by changing the regulatory environment in the financial sector, including the introduction of private banks and the opening of the Damascus Securities Exchange in March 2009.[47] In 2001, Syria legalized private banking and the sector, while still nascent, has been growing.[6] Foreign banks were given licenses in December 2002, in compliance with Law 28 March 2001, which allows the establishment of private and joint-venture banks. Foreigners are allowed up to 49 percent ownership of a bank, but may not hold a controlling stakes.[22] As of January 2010, 13 private banks had opened, including two Islamic banks.

Syria has taken gradual steps to loosen controls over foreign exchange. In 2003, the government canceled a law that criminalized private sector use of foreign currencies, and in 2005 it issued legislation that allowed licensed private banks to sell specific amounts of foreign currency to Syrian citizens under certain circumstances and to the private sector to finance imports. In October 2009, the Syrian Government further loosened its restrictions on currency transfers by allowing Syrians travelling abroad to withdraw the equivalent of up to U.S. $10,000 from their Syrian poundaccounts. In practice, the decision allows local banks to open accounts of a maximum of U.S. $10,000 that their clients can use for their international payment cards. The holders of these accounts will be able to withdraw up to U.S. $10,000 per month while travelling abroad.[6]

To attract investment and to ease access to credit, the government allowed investors in 2007 to receive loans and other credit instruments from foreign banks, and to repay the loans and any accrued interest through local banks using project proceeds. In February 2008, the government permitted investors to receive loans in foreign currencies from local private banks to finance capital investments. Syria's exchange rate is fixed, and the government maintains two official rates—one rate on which the budget and the value of imports, customs, and other official transactions are based, and a second set by the Central Bank on a daily basis that covers all other financial transactions. The government passed a law in 2006 which permits the operation of private money exchange companies. However, a small black market for foreign currency is still active.[6]

Still after the opening of the financial sector, the six specialized state banks, the Central Bank of Syria, Commercial Bank of Syria, Agricultural Co-Operative Bank, Industrial Bank, Popular Credit Bank, and Real Estate Bank, are major financial operators. They each extend funds to, and take deposits from, a particular sector. The Central Bank of Syria controls all foreign exchange and trade transactions and gives priority to lending to the public sector. The Industrial Bank also is directed more toward the public sector, although it is under-capitalized. As a result, the private sector often is forced to bank abroad, a process that is more expensive and therefore a poor solution to industrial financing needs. Many business people travel abroad to deposit or borrow funds. It is estimated that Syrians have deposited US$6 billion in Lebanese banks. The U.S. sanctions of May 2004 may have increased the role of Lebanese and European banks because a ban on transactions between U.S. financial institutions and the Central Bank of Syria created an increase in demand for intermediary sources for U.S. dollar transfers.[dated info][22] The US, EU, Arab league and Turkey all imposed Sanctions on the central bank because of the Syrian Civil War.[48][49]

Non-Arab visitors to Syria reached 1.1 million in 2002, which includes all visitors to the country, not just tourists.[22] The total number of Arab visitors in 2002 was 3.2 million, most from Lebanon, Jordan, Saudi Arabia, and Iraq.[22] Many Iraqi businesspeople set up ventures in Syrian ports to run import operations for Iraq, causing an increased number of Iraqis visiting Syria in 2003–4.[22] Tourism is a potentially large foreign exchange earner and a source of economic growth.[22] Tourism generated more than 6 percent of Syria's gross domestic product in 2000, and more reforms were discussed to increase tourism revenues.[22] As a result of projects derived from Investment Law No. 10 of 1991, hotel bed numbers had increased 51 percent by 1999 and increased further in 2001.[50] A plan was announced in 2002 to develop ecological tourism with visits to desert and nature preserves.[51] Two luxury hotels opened in Damascus at the end of 2004.[51] Since March 2011 tourism in Syria has fallen due to an ongoing civil war.

Syria has a population of approximately 21 million people, and Syrian government figures place the population growth rate at 2.37%, with 65% of the population under the age of 35 and more than 40% under the age of 15.[6] Each year more than 200,000 new job seekers enter the Syrian job market, but the economy has not been able to absorb them.[51] In 2010, the Syrian labor force was estimated to total about 5.5 million people. An estimated 67 percent worked in the services sector including government, 17 percent in agriculture, and 16 percent in industry in 2008.[1] Government and public sector employees constitute about 30% of the total labor force and are paid very low salaries and wages.[6]

According to Syrian Government statistics, the unemployment rate in 2009 was 12.6%; however, more accurate independent sources place it closer to 20%.[6] About 70 percent of Syria's workforce earns less than US$100 per month.[51] Anecdotal evidence suggests that many more Syrians are seeking work over the border in Lebanon than official numbers indicate.[51] In 2002 the Unemployment Commission (UC) was established, tasked with creating several hundred thousand jobs over a five-year period.[51] As of June 2009 it was reported that some 700,000 households in Syria - about 3.5 million people - have no income.[52] Government officials acknowledge that the economy is not growing at a pace sufficient to create enough new jobs annually to match population growth. The UN Development Program announced in 2005 that 30% of the Syrian population lives in poverty and 11.4% live below the subsistence level.[6]

A report[53] by Strategic Foresight Group, a think tank in Asia has calculated the opportunity cost of conflict for the Middle East from 1991-2010 at US$12 trillion (12,000,000,000,000). Syria's share in this is over a $150 billion. The government also spends almost 7% of its GDP on the military, compared to 2% spent on health care.

Under 3 million Syrians lost their job during the current conflict which leaves more that 12 million people without their primary source of income, unemployment went from 14.9 percent in 2011 to 57.7 percent at the end of 2014. As of 2015 4 of 5 Syrians live in Poverty. 30 percent of the population is in abject poverty which means they can not sustain basic household food needs. [54]